HM Revenue and Customs (HMRC) has published a new consultation document on ways of improving the PAYE system.

It follows on from an initial document issued back in July and forms the second stage of the Government's plans for reforming the PAYE regime.

The new document focuses on 'real time information'. Under the system, employers would send HMRC information about tax and other deductions from employees' pay when, or before, they make the salary or wage payment to the employee, rather than sending returns at the end of the year.

HMRC said that the majority of responses to the first consultation favoured a move to a real time method of collecting information.

The latest consultation document concentrates on responses to the July document and is looking at ways of how best to implement a real time system.

Business groups have been supportive of moves to improve the system and to reduce the administrative burdens that the present PAYE regime can impose.

But there have also been concerns, based on proposals outlined in the first consultation document, that HMRC has been considering a centralised deduction system.

This would involve the tax authorities assuming direct responsibility for deducting income tax and national insurance contributions straight from employees’ wages, shifting it away from employers and to the electronic payment system.

The new consultation document does not, in the view of the Institute of Directors (IoD), completely dispel worries that centralised deductions are completely off the agenda.

The IoD said that centralised deduction would pass over, from the employer to someone else, responsibility for working out how much tax to deduct from pay.

This, the IoD argued, would blur the lines of responsibility, allowing employees to hold their employers responsible for any mistakes.

Employers should always have the option of controlling payments to HMRC, the IoD continued.

While the Government only wants employers to submit, in real time, information that is already collected, the IoD voiced wariness over the suggestion that information which is currently collected for purposes other than PAYE might be needed.

Richard Baron, head of taxation at the IoD, commented: "Overall, this is a sensible document. We support real-time information, which has the potential to reduce bureaucracy and to facilitate reform of the benefits system.

"But we must be very careful about the details. There is always a danger that extra burdens will be imposed on employers for the convenience of officials. They will think, let's collect some extra data (like hours worked) while we're at it, so we can monitor everything more closely. And we repeat our call to reject the very foolish option of centralised deduction."

A spokesman for HMRC sought to allay worries by insisting that the tax authority does not have plans to deduct payment directly from wages.

He said: “Under real time, HMRC will get the information it receives now and which it is entitled to receive more frequently.

“This is about providing information as and when payments are made. It is very different to monthly filing of returns which would be more likely to increase burdens on business as it would separate to the payment system.

"Our proposal for real time information has the potential to reduce burdens on employers. It aims to build on the payroll software and existing electronic payment systems to send information automatically at the same time as the payment is made."